Day9 wrote:Assumptions: You work from 25-65, for 40 years. Your balanced portfolio returns 6% CAGR. You use a 4% Safe Withdrawl rate. Your income does not change throughout your career (for simplicity's sake)
If you make the assumptions above then you will be able to have the same income in retirement as you do when you are working if you contribute 15% each year.
For example if you make $100,000. You contribute $15,000 per year to retirement accounts. Growing at 6% , in 40 years you will have:
When you retire you take 4% of this and withdraw that dollar amount each year. That will be: $98,428.61. Of course in 40 years $100k won't go as far, due to inflation.
I made a lot of oversimplifications and assumptions. That is why 15% is just a rule of thumb. You need to examine your own personal situation and decide if 10% will take you where you need to go.
I don't believe the average American makes $100,000 a year. I've read that the average family earns about $40,000 a year. That's it. Given that assumption, saving at 15% per year is $6,000 a year. What type of retirement would that add up to? According to bankrate.com $600K for a taxable account and about $980K for a Tax Advantaged. I think that's quite high given a 6% yearly return. My personal belief is that average family will not be saving anywhere close to $6,000 a year unless they live in a tent.
JupiterJones wrote:Household maintenance is a known and necessary expenses and therefore requires some amount of regular savings. In this regard, it's no different than property taxes, a car replacement "sinking fund", etc. So I would prioritize this ahead of maxing out the 401k.
Whether you need to divert the whole $1000 or whether you can do something like split the difference (knock down the 401k by only $500, for example) depends entirely on the cost of the expected repairs and how long you have until you need to make them.
But note that I'm talking about necessary repairs, not elective repairs. These are needs, not wants. If the roof is leaking, the paint is peeling, or the doorknobs are coming off in your hand, that's necessary. If you just don't like the color of the paint, or the appliances are out-of-fashion, that's a different thing altogether. Saving for that should be prioritized with your other wants (vacations, etc.)
Incidentally, I don't think the "magic number" should really be some arbitrary percentage anyway. If you have to pick a value, 15% is as good as any. But it really depends on your retirement goals and how close you are to achieving them. It's going to be different for everyone.
I disagree that Household Maintenance is a known factor. For instance, Roof repair that's necessary might cost $8,000 or it could cost $30,000 depending upon the materials used. Appliances give out and have certain life expectancies. Driveways can need replacing over time - for instance an asphalt driveway cracks over time and needs recoating. It all depends upon the type of house one buys and what materials have been used that will determine cost. Air Conditioning system do not last forever but you never know when yours will give out after years of replacing 'parts'. That can be another $6,000 expense. So if you were to budget for big ticket items . . . like a new roof, new appliances, new air conditioning/heating system, new water heater, upgrading an electrical panel to add new circuits to accommodate modern needs, it can add up to a BIG chunk of change far beyond anyone's possible predictions and therefore saving for these things is a requirement, but often requires pockets larger than one anticipates - especially if everything happens at once (including a septic tank failure).